When Does Helping a Client Become Unethical?

insurance continuing educationIt’s important to realize that what is unethical may not always be illegal (though sometimes it is both). There are many instances where businesses may act within the law, but their actions hurt society and are generally considered to be unethical.

Let’s look at an example. Anne Jones is a newly licensed agent at the AB Insurance Agency who is given her own book of current business for renewals. She decides to introduce herself to each client to make sure that everyone renews with her. Her first stop is Mark and Mary Able’s apartment to renew their rental coverage.

The Ables tell Anne that they have purchased a house and are closing soon. Anne tells them, “You’ll need an HO-3 policy at your closing to show proof of insurance. I’ll be happy to provide that for you. The HO-3 form covers the house and everything in it on an all-risk basis, and it also includes $100,000 in personal liability coverage.”

Mark was anxious to finish the deal and move into the new house. “You mean it covers everything, Anne? But do we really need $100,000 in liability insurance? Isn’t that too much?”

“Yes; it’s all-risk.” Anne said. “$100,000 is the minimum we can write. I can provide the policy for your closing next week, but I’ll need a check for $520.00.”

Mark sighs and says, “I don’t get paid until the end of the month. I need money for the closing so I can’t write you a check today.”

Anne wanted to keep the business so she said, “How about writing me a deposit check for $100 and pay me the balance next month? I’ll pay the insurance company and deliver the HO-3 policy in time for your closing.”

Mark writes the check payable to Anne, who deposits it into her personal checking account. Anne writes a check to the insurance company for the annual premium (less commission) and delivers the policy as promised so the Able’s closing goes smoothly.

Has Anne Jones done anything illegal or unethical?

Anne’s enthusiasm has created some misjudgments in her sales approach and policy information. The HO-3 policy is an “open perils” form that contains certain exclusions and limitations on coverage. Although not a direct violation in many states, the extension of credit can be perceived as an inducement to purchase by offering an interest-free loan. Even if interest is charged, Anne’s offer to pay the premium can be considered rebating in many jurisdictions. Collected premiums and personal funds must be maintained in separate accounts. When Anne deposited the Able’s check into her personal account, she commingled funds, which is illegal.

Anne’s supervisor should not rein in Anne’s enthusiasm about selling insurance, but should direct it with some additional training by reminding her that commingling and rebating are violations of state law and that the contract is not “all-risk.” Anne must immediately correct the Able’s impression about what their policy covers and deposit funds into her agency’s Premium Fund Trust Account.

Want to know more about ethics?  Check out our ethics insurance continuing education classes.

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Your Insured Suffered a Loss: Now What Happens?

insurance continuing educationLet’s say one of your clients trips at work and is injured, or another one accidentally runs a red light and hits an oncoming car, or maybe a windstorm tears away part of someone’s roof, letting the rain and debris come into their home—what should they do?

As an insurance agent, you should explain that when your clients buy an insurance policy, they’re buying a promise from an insurance company: they’re paying a small amount of money to protect themselves, their family, or their business against a much larger loss. So what happens when that loss occurs? Although insurance policies can vary, the Duties After Loss clause in a policy tends to be fairly standard.

The Duties After a Loss clause specifies what a person must do in order to recover for losses covered by the policy. Most insurance companies have no duty to provide coverage unless there has been full compliance with the following duties: The insurer must be notified promptly of how, when, and where the accident or loss happened. Notice should also include the names and addresses of any injured persons or witnesses.

When you sell or renew an insurance policy, it’s a good idea to remind your clients that insurance is a two-way street when a loss occurs. Insureds must comply with the policy’s rules if they want the policy to provide coverage and the insurance company to pay for the loss.

Let’s look at a couple of examples.

  • Assume your insured is injured at work, what should he or she do first? An employee should notify a supervisor about the injury and the way in which it occurred, as soon as possible. An injured employee who fails to inform his or her employer, in writing, within 30 days after the date of the accident causing the injury, may lose the right to workers’ compensation benefits.
  • Assume your insured is involved in a car accident, what should he or she do first? If they have a cell phone, they should call 911 and ask for police assistance and, if needed, emergency medical personnel. If they think someone may be injured, they should request an ambulance. If there is any indication that your insured might be injured, recommend that they agree to be transported to the hospital by ambulance.
  • Assume your insured calls to say their part of their roof blew away and rain is coming in. The first step is to take all “reasonable” steps to protect the property from further damage. This could mean putting a tarp over the hole or maybe taking furnishings out of the room to protect them from further rain damage. However, it may not be reasonable to expect the insured to climb up on the roof, but a tarp over the furniture might prevent further damage.

Depending on the type of loss and type of insurance policy, the insured may have to take an inventory, notify the police, notify the insurance company promptly, provide specific details about the loss, and provide proof of loss. In all cases, the insurance company will expect the insured to cooperate while it is adjusting the loss. This means the insured must provide access to damaged property and may be required to assign subrogation rights to the insurance company. This means that the insurer assumes the right to pursue damages against the at-fault party, if people other than the insured are involved.

Want to know more about an insured’s duties after a loss? Check out our property and casualty insurance continuing education classes.

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Who Needs Personal Umbrella Insurance?

personal umbrella insurance

Having friends over for a few beers seems harmless enough—unless one of them drives off and gets into a serious accident. Then the insured may wind up in court. These days, the insured can be held liable for the damages that guests cause after the insured “allows them” to consume alcohol at the insured’s home and then “allows them” to drive. Some states have laws that mandate a host’s liability, much like a bartender’s liability. 

The insured could be responsible for the payment of medical bills, vehicle repair costs, lost time from work—and, in the worst case, claims for wrongful death that may result in huge monetary settlements. 

Does the insured have coverage for such a situation under a Personal Auto Policy or homeowners policy? Coverage will certainly be limited. 

Personal Umbrella Insurance 

Personal umbrella policies play a vital role in protecting against liabilities by providing broad coverage and high limits of coverage that most commonly sold personal liability coverages, known as underlying policies, do not provide. 

While homeowners or personal auto policies do provide coverage for their respective liability situations, often the limits aren’t high enough to cover all the damages that could be awarded in even a moderately severe case. In other words, if the policy has a $250,000 limit for automobile bodily injury and a court enters a judgment of $500,000, the insured will be responsible for the rest. 

In addition to extending home and auto (and other vehicle) insurance liability coverages, umbrella insurance also commonly covers an insured against the following causes of loss: 

  • property damage liability, 
  • landlord liability (for owner’s of rental units), 
  • bodily injury liability, 
  • libel/slander/defamation lawsuits, 
  • false arrest, 
  • malicious prosecution, 
  • violation of privacy rights, 
  • wrongful eviction or wrongful entry, and 
  • other types of lawsuits. 

Payment of defense costs, attorney fees and other expenses associated with the lawsuit, even if the lawsuit is groundless or frivolous in nature, may also be covered. The coverage of those costs and fees is in addition to the policy limits in most policies, but some insurers include it as part of the coverage limit. 

When a court hands down a liability judgment that exhausts the limits of the homeowners or automobile policy, the insured is responsible for the balance. This means the insured may have to sell his or her house, cash out IRAs or liquidate other assets in order to make the payment on the judgment. And, if assets are exhausted and the judgment is still not fully satisfied, the insured may have to dip into future earnings to pay the remainder of the outstanding judgment. One major liability case can wipe out the assets that took a lifetime to create. 

Want to know more about personal umbrella insurance? Check out our Advanced Thinking About Insurance continuing education classes. 

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The Personal Auto Policy (PAP)

personal auto policy

For many Americans, a car is the single most costly property they own and for most others, second only in value to their homes.  For most, a car is also essential to their life style, since contemporary American society has been built around individual auto ownership rather than, say, widespread access to good public transportation. Many families own more than one primary car, as well as supplementary vehicles, such as RVs or golf carts. 

Driving is a skill. To do it right, the driver needs to be alert, focused, responsible, and sensible. Not all drivers meet those criteria. They get into accidents with other cars or just by themselves. But even careful drivers cannot always avoid accidents.  

Since 1971, the Insurance Services Office (ISO) has been providing property/casualty insurance companies with comprehensive risk data and analysis and model insurance policy language. ISO’s actuaries and legal experts write standardized policy language which is the foundation on which many insurers build their coverage programs. Among ISO’s forms is the model Personal Auto Policy (PAP). Here’s a brief look at what the PAP covers. 

You Injure Someone ia Car Accident 

Somebody has to pay for the damage cars and drivers do to other cars and the medical costs of the injuries accidents cause. States do not want this burden falling on them. That is one reason every state has some form of motorist financial responsibility law. These laws require drivers to demonstrate they are able to pay the costs for any accidents they cause. Most states require the purchase of auto liability insurance in minimum amounts set by law to cover at least a portion of motorists’ legal liability to others. 

Most commonly, liability limits are written as a split limit. A split limit will be written like 25/50/25. The first number ($25,000) represents the amount per person that could be paid for bodily injuries incurred as a result of the accident. The second number ($50,000) is the amount that could be paid, up to a maximum total, for all bodily injuries incurred in the accident. The third number ($25,000) describes the payment that could be issue for all property damaged in the accident. Remember, this coverage is for others involved in your accident, not for you or your vehicle.  

For example, Texas motorists are required to carry bodily injury and property damage liability insurance. Minimum limits are 30/60/25. The state requires motorists to show proof of insurance when they:     

  • are asked for it by a law enforcement officer; 
  • have an accident; 
  • register a car or renew its registration; 
  • obtain or renew a driver’s license; or 
  • get a car inspected.  

 Someone Steals Your Car or Damages It 

Comprehensive coverage, on the other hand, pays for repairs to your vehicle when it is damaged by something other than a collision. A rock flies up and breaks your windshield. Or maybe your car gets stolen. Or you hit a deer that runs out in front of you. Comprehensive insurance covers the damages. It also covers damage from natural disasters such as fire, wind, hail, and flood. What comprehensive doesn’t cover is any type of auto accident damage. 

You Have an Accident 

Collision insurance pays for your vehicle to be repaired after you collide with another vehicle or an object such as a tree. If you crash into a wall, fence, or another car, your collision coverage pays for damages even if it’s your fault. 

Miscellaneous Coverge 

The ISO Personal Auto Policy also offers these coverages: 

  • Medical – Pays medical expenses for injury in an auto accident no matter who is at fault. 
  • Uninsured/Underinsured Motorist – If you get into an accident with someone who has no insurance, or insufficient insurance, these coverages provides a backup that pays for the damages. 
  • Rental Reimbursement – Pays for a rental car while repairs are being made to damages due to an accident. 

Want to know more about personal auto insurance? Check out our Property and Casualty courses and PAP courses in our insurance continuing education classes. 

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How Workers’ Compensation Works

workers compensation

Joe Johnson worked for Harrington’s, a printing company and clocked in every Monday through Friday from 8:00 a.m. to 5:00 p.m. One Friday morning, Joe received an email from the owner of the company telling him that an all-expense paid event was scheduled for that afternoon at a recreational facility where the employees would play games, eat, and play flag football. The owner explained that the event was part of the company’s team building efforts and everyone was expected to attend. However, employees could choose to stay at work. As the team lead in his department, Joe felt pressured to attend the event and to encourage all the team members to do the same. 

While the employees were eating, Harrington’s owner assigned the employees to teams and gave them all a pep talk about the importance of working as a team. He stressed that he loved winners and wanted then to show him their best efforts. Prizes were going to be awarded for the winning teams. While running for a touchdown, Joe tripped and fell, injuring his right side. Despite his injury, Joe remained at the event until 5:00 p.m. and received his normal pay for the day. He went to the hospital on the way home from work where they found a rib fracture and a punctured lung. Because Joe was off work for a few weeks after a surgery, he exhausted his sick time and vacation time. 

Joe filed a workers’ compensation claim, which the employer and the insurance company contested because Joe’s injury did not arise out of or in the course of his employment. Based on what you know about workers’ compensation, would you agree that Joe was not entitled to workers’ compensation benefits? 

Workers’ Compensation in Action 

Today, under a statutory (written law) system, workers’ receive compensation for job-related injuries without having to challenge an employer, and regardless of whether or not the employer was at fault. Statutory workers’ compensation benefits are the exclusive remedy for many types of work-related injuries, but they guarantee that benefits will be paid. It took a major shift in social priorities and public policies to bring about the change. 

In Joe Johnson’s case, an administrative law judge (ALJ) heard the case and found that Joe felt pressured to attend the event even though attendance at the employer-sponsored event was not mandatory. The claim was compensable and Joe was awarded benefits for a work disability. 

Workers’ compensation covers both injuries that are specific as to time and place as well as injuries that occur over a period of time. Injuries that occur because of doing the same type of work over and over and causing strain on the body parts involved are called cumulative trauma. Cumulative trauma is often the result of repetitive work that over time results in injuries, especially back injuries and wrist injuries such as carpal tunnel syndrome. 

Want to know more about worker’s compensation insurance? Click here to view our Workers’ Compensation Insurance continuing education classes.

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